Markets
Across the board things are looking too cheap, however from a charting perspective things are looking negative too. The one positive I saw yesterday during my chart reviews was the increase in the Volatility Index in relation to the market. Fear is so high, yet the markets are relatively contained. I hesitate in shorting this market as it is oversold and fear so high, but at the same time I understand the negativity. I wish I had the time to dig into CDOs and understand the allocation of debt between them. For instance when I read up on these things, the term is very general. Are they backed by mortgages, leverage, bonds…etc. Are the CDOs from Sub-Prime the only ones failing? Or have the CDOs (used for private equity) failing? We are told it is subprime, yet in the same breath we are told it will spread to other areas. But we are not told how nor why. As investors we can not ignore the differences in what is failing, those differences matter. Do not get me wrong, a domino effect can happen as people pull out because they are not willing to understand the differences. I mean, here we are questioning the very essence as to how the pros raise money, and have been raising money for years. What I see coming out of this, especially if pension funds were hurt by it, (which they should not be hurt hard as they should be allocating funds with EXTREME diversity to various hegde funds), is greater controls with in the CDO space.
Questions I have are like: Why did the fund managers buying the CDOs not question how it originated (via debt vehicle)? Did the manager care? If they knew it was from subprime (and even if they did not) why leverage to such a degree? I guess I blame the manager for not conducting proper due dilligence instead of the system. I mean would these pension fund managers or hedge fund managers invest in a company they did not know about, so why would they invest in a CDO they know so little about? I am not an insider so a lot of these questions may seem naive, but why is the system to blame? And why are we questioning every CDO out there, right down to the almost half a trillion dollars worth of them?
